Subprime, one of the currently foundation issues that have concerned people for some time during the financial crisis was only found on two pages in this 2,300-page document. Capital market, really the key to all of these was found on two pages. A structure product in an area that many of you are familiar with, has been a problem for investors for the last three or four years, was only found on two pages. Perspectives which is to the heart of full disclosure was never mentioned in the document whatsoever. New York, arguably the site of all financial services for this country was only mentioned on one page. Chicago, where most of the derivatives in this country are traded was never mentioned. Alaska was given the same weight as New York. I came to find out that Guam was given five pages. So the wisdom of drafting this document, Guam was far more important than New York and Chicago. Honesty, which I think should be at the heart of this, was never mentioned whatsoever.
Here are some things that were discussed, debated but left out. I think it is important to see not only what was in the document in the legislation but is missing from the legislation. The final status of FNMA, FHLMC was not decided by Dodd-Frank which had been the intention of many. So the government remains the largest mortgage lender in this nation.
The fiduciary requirements of all financial advisers, unlike Canada which imposes fiduciary requirements of all advisers, we have not reached that stage yet and we will talk about that just a little bit later. Fiduciary requirements are something that has been investigated or is instructed to be investigated through the Bill, but certainly is not in the legislation at this point.
Toughest restrictions on derivative trading.
There are some restrictions on derivatives trading but certainly not as tough as originally discussed. Then, finally the elimination of compulsory arbitration that was one of the highlights that was discussed early in the debate but is missing in the final Act. The SEC is required to conduct a study. The result of that study, probably, won’t be known for a couple years but it is not in the final Act, by the way.
Here are some highlights and I think it is important:
– We have a watchdog bureau. There are lots of bureaus, commissions, agencies, you name it, and there are a lot of bureaucracy surrounding the new Dodd-Frank Act. We have a new watchdog bureau. There is a challenge to the Too big a sale. It’s going to be difficult to fall under that protection now as a financial services company. The financial crisis monitoring system is going to be enhanced. We will talk a little bit about that later. The disclosure requirements are going to be enhanced for exotic investments. Shareholders are going to have a voice in executive compensation. I’m not sure how that is different from the system now, but I did now that they will have access to proxy materials, which I think is not the case now. Oversight of the credit ratings services, which will fall under the SEC, which will certainly be a new issue for all of us. Restraints in general, all the oversight and it formalizes a whistleblower system, which has gotten a lot of people excited but I will not discuss that later. There are certainly some reasons to doubt whether that’s going to be as effective as people might imagine.
Here’s the new watchdog bureau. Let’s talk about that. I have abbreviated it to CFPB (Consumer Finance Protection Bureau). It’s an independent part of the Federal Reserve System. It has a $500 million stand-alone budget. I think that from what I understand from some contacts in government authorities, it will be pulling from a lot of different organizations, including the SEC, probably FINRA, maybe even the IRS and the FBI. It is a broad authority.
This is interesting too. The new CFPB will not have to ask Congress to make new laws. Under the guidelines and the mandate given to the CFPB, it can manage by rules. Certainly, the rules cannot be in conflict with some broad-based Constitutional issues, but from what I understand, is that they’ll be able to set new guidelines without going to Congress for approval. It’s going to have a new office, a financial literacy and this is going to be very powerful, by any measure, a powerful new Bureau.
Here were the candidates. When I first did these, there were three candidates and after the initial appointment of Ms. Warren, I still left him up here because I think, it is a very interesting list of very qualified people.
TASAnet, expert witness referral specialists, present: The Dodd-Frank Wall Street Reform & Consumer Protection Act: The Impact on Regulatory Mandates & Securities Litigation Pt. 3